Short and long dog run.

I recently purchased a new puppy. A pure bred Jack Russell Terrier (like the dog on the Mask, or Wishbone). Many people ask me how much did he cost? Well the hard truth is about 500 dollars (not including leash, food, color, bed, and other odds and ends). "How could you spend that much on a dog?" they always seem to ask. But the fact is he has economic benefits out the freaking wazoo. For starters he is predictable. His temperament and personality were practical bred into him. When you pick a dog up from the pound who knows what your going to get. And then along with a puppy you get all the utility (lets call him a utility of 800). But is housebreaking a puppy and constantly having to buy food worth the utility? Well when he gets to the right age he has come from a prestiges enough background that I can "stud" him out for anywhere from 50-200 bucks a pop. And that usually comes with my personal pick of the litter to sell or give away or keep. 3 or 4 of those jobs and I got the little guy payed off. So don't look at my dog as a cute little money pit. Because one day I'm going to be rich, and Howie is going to have a lot of fun getting me there.

Pollution Control

In class we have often used the example of pollution as one of those negative externalities that is difficult to measure and regulate. Pollution is indeed a complex topic to tackle, but it impacts our lives tremendously. Many health problems including asthma, cancer, learning disabilities, metabolic conditions, and more are linked to the environment in which we live. Pollution control measures, including the Clean Air Act, created problems for many firms. It is expensive to meet pollution control specifications which put some firms out of business. In our textbook, the author points out the proposition economists made in response to firms' compaints. He sats that economists came up with the "cap-and-trade" policy in which pollution is reduced just as much as it was with the former policy yet these achievements are made at a lower cost overall. The "cap" is the government set level of how much pollution can be created or emitted. "Firms that reduced emissions by less than the required limit could buy polluttion permits from other firms that reduced their emissions by more than their limit". Firms with a lower cost of reducing their emissions can achieve greater reductions than firms with high costs of reducing their emissions. The firms with the lower costs can trade their permits (the amount of left over pollution they can still create) to firms that have higher costs. The price of permits was established "in an 'emissions permit market'" which is kind of similar (I think) to what we saw on Aplia today in the Hunting and Fishing Experiment in which permits were introduced. Pollution control is also mentioned in the textbook in the discussion of incentive policies as a way to deal with externalities (Chapter 18). Effluent fees (or taxes on pollution) seem to be a good idea because the person who reduces their pollution the most pays the lowest amount in taxes. Another benefit is that "with the tax, the invisible hand guides the traders to equate the marginal social cost to the marginal social benefit and the equilibrium is socially optimal".

I think the cap-and-trade is good because it achieves the same reduction at a lower cost, but I think a problem arises regarding distribution of pollution. Firms with high costs of reducing their pollution will end up polluting their surrounding environment more. For people in the community where these firms are, this cap-and-trade may really hurt them.

The Battle of the Renters

When the government puts a price ceiling on rental homes, it is saying that the demand for rental homes is completely “inelastic”, meaning that people would continue to rent the home indefinitely, even without considering the price. This just isn’t true because if a certain house is going to cost us more than we can afford, we will naturally look for one that is less expensive. This means that if no one could afford to live in the more expensive homes, demand for those homes would decrease and the supply would increase, giving us a surplus of the more expensive homes. This would mean that in order for those landlords to rent their homes so they wouldn’t lose money because of vacancy, they would have to drop their prices to accommodate the demand.

Because the government forces the landlords/homeowners to rent their places out for less than they feel that they deserve, there is less incentive for them to make repairs on the home and keep it nice. This can also be the beginning of a bad relationship between the landlords and their tenants. Allowing renters the freedom to charge whatever price they feel is fair gives all prospective tenants an equal opportunity to rent. If the price is too high, no one will rent and the owner will eventually have to drop the price. This will encourage home owners to rent at a competitive price, and at the same time will persuade tenants to rent within their means. When tenants rent what is affordable, there will be less wasted space, and the homes will be kept in much better condition.

The Economics of books.

College is full of lots and lots of costs. Apartment, class, food, gas, and BOOKS! A single book can cost more than 100 dollars. But why so high? Well lets think about this. Did you know that book company's will actually send professors free books in the hope that the professor will like it and they can sell the book to all his students that HAVE to buy it regardless of price? The last thing the professor looks at is the how much it costs, I mean he's getting it for free so who cares. What he's looking for are some of his favorite subjects (the things he really likes to teach). So what do the book makers do? They fill the book with 20 chapters (much more than any class could cover in a semester) so that no matter what the professors "favorite" topics are they will almost certainly be covered. And along with a large book comes large cost. So because the book makers understand that all they have to do is impress the professor we get these big books with huge prictags. So all you professors out there, choose a small, cheap book and do us all a favor.

The effects of Bush's $63 million cuts proposal on Cedar City

Even though I strongly approve of government cuts in spending, I appose this policy because it hurts small communities that need the subsidies the most. Cedar City would have to come up with two hundred thousand dollars in order to keep SkyWest in Cedar City. We have recently designed a new airport terminal for Cedar City and found funding for it. Cedar City is a growing community. If this proposal goes through, there are only two things we could do to keep the airport open, cut other city services or raise taxes. The city services we would have to cut into are our parks, street maintenance, and other city funded programs that beautify our city and make it a pleasant place to live. Our taxes are already very high, raising our taxes would only slow down our economy and keep people from moving to Cedar City because of the high taxes, which would only stunt our growth even more. In conclusion, I believe that the Bush administration shouldn’t just cut, cut, cut…they should look into what communities can handle the cuts and which ones can’t.

What's in YOUR trash?

So in an article from the Washington Post, which can be accessed from the article "Consumption Tells All" at www.cornersolutions.com, I read some interesting stuff about measuring consumption! Basically, two French photojournalists have spent the last fifteen years going through famous people's trash, organizing what they have found in a "display" and selling it. The article claims that this may be a better way to get to know a star than the National Enquirer or Star magazine!

I could see that. I mean, I have always said that you can tell a lot about people by what's in their wallets and purses, but I never thought about looking through their trash. The rationale is that you can find all sorts of things that describe a persons consumption preferences, which likewise describe their personality, such as what they like to eat, new clothes tags, bad habits, pets, papers, etc. So we are talking about a good way to measure consumption here. We could probably approximate the utilites Britney Spears gets from smoking by the amoung of cigarette cartons in her trash. Or in the civilian world, we could measure the amount of utilities Darcie gets from eating cookies by the number of cookie wrappers in her garbage.

What are the economists thinking? If they want to know what people's consumption preferences are, just go through their trash! Although, I think I would be to scared to go through Christina Aguilera's trash, but watch out Dr. Tufte!

We’ve Created a Monster……and it’s eating the world.

In 1962 in Rogers, Ark. Sam Walton opened Walton’s Five-and Dime store. A small but no doubt humble operation. Few if any could have ever guessed that it would become one of the greatest American entrepreneurial successes. That humble Five and Dime became Wal-Mart the “super” or should we say “monster” store giant.
Here are a few facts to help one understand the growth of what I’m sure at some point is going to have the moniker “monopoly” attached to it. Here are some facts from a now year old article I have come across. One Nation Under Wal-Mart
As of July 2003, Wal-Mart Stores, Inc.'s U.S. operations included 1,514 traditional stores, 1,343 Supercenters and 528 Sam's Club warehouses. What’s even more astonishing is that since 1992 when Sam Walton died Wal-Mart was about one-fifth its present size. The article has popped up in more than one place. It was even used in my last semester marketing class. I found it recently at a United Food & Commercial Workers International Union website. The food workers are heavily affected whenever a super-center moves into their neighborhood and takes a large chunk of their business. They even have a link Not in My neighborhood to try and combat the problem. I’m sure they get some satisfaction from venting their frustrations but there’s no stopping the monster now. As new Wal-Mart’s keep popping up more stores and of every variety disappear, along with our choices of places to buy.
The question that has to be asked is whose fault is it that Wal-Mart got so big? The answer is all of us who shop there, it’s more our fault than Sam’s. We kept asking for it and he kept giving it to us……. cheap!! This gave us more buying power so we bought more and asked for more, and he kept giving it to us…… cheaper!!
For now nothing will get in Wal-Mart’s way and when it has they’ve just expanded somewhere else. In 2002, Wal-Mart had 1,288 stores in foreign countries. Wal-Mart has even made its way to the ballot box A Big-Box Ballot Bully
It’s only a matter of time before the government finally steps in and cries foul. As long as consumers keep getting low prices they won’t complain. That could well change when there’s only one place left to shop. For now the government is just interviewing a lot of people named David with sling experience. Then like Ma Bell we’ll end up with a bunch of baby Mart’s.

Commercializing Space

I am sure most of us have heard of the folks taking the building of spacecraft into their own hands, right? Well for those of you who haven't heard, the worlds first privately funded space mission is about to go down. Twenty six groups are racing for the Ansari X-prize of 10 millions dollars. A Spacecraft funded by Paul Allen, Co-founder of microsoft, is one of these groups. Anyways, the mission is that one of these groups must launch three people at least 62 miles into space, twice, within a period of two weeks. Wow.

So what does this have to do with economics? Everything. Through NASA, the government has monopolized the space industry for a long time, maybe too long. In fact, this may have led NASA to become a lazy monopolist, where they have been enjoying the position that they are in rather than pushing for efficiency. We could probably toss in a little X-inefficiency factor there as well. So why hasn't anyone been able to break down this space monopoly? I could assume that there were quite a few barriers to entering this market, including NASA being government sanctioned and sponsored, having unlimited military supply, the necessity of havings lots of money for startup and indivisible set up costs, and more.

The good thing is, NASA recognizes the stagnant predicament it is in, and certain influential people, like President Bush, are trying to step up to the plate and better the situation by creating a "new vision" for NASA. Their idea for a new vision was "to commercialize space". So, now that the barriers are being stripped away, we now that other profit maximizing firms or individuals will compete away this monopoly, and in the face of new competition, NASA will improve its efficiency. Enter- a new space age!


Would raising the minimum wage help or hurt?

In the article “Ignorant Superstition” by Don Boudreaux (found at http://cafehayek.typepad.com/hayek/), the issue of politicians, such as John Kerry, who claim they will raise the minimum wage is brought up. The article discusses the negative effects this action would cause to the labor market rather than the “positive” ones that economics-ignorant John Kerry thinks it would have.

I personally agree with Don on the matter, I think that raising the minimum wage will have a negative effect on the labor market. When wages are forced upwards like increasing the minimum wage would do, usually firms must compensate elsewhere, either by decreasing their demand for labor, laying workers off, etc.. The law of demand states that as price increases, demand decreases. So as firms are forced to pay higher wages to employees, their demand for labor will decrease and the supply of labor will increase creating a surplus of labor and a shortage of jobs.

The minimum wage issue is a tricky. On one hand, I do believe that there are plenty of people in the U.S. who haven’t had the opportunity that others have had to be successful, and greatly benefit from minimum wage laws. Yet, I think that a raise will only decrease the amount of jobs available, increase the unemployment rate in the unskilled labor market, and encourage those who work for minimum wage, to keep working for minimum wage- the opposite effect of what was wanted in the first place.

Happy Meals Kill

I was reading an article about the McDonald’s vs. Over Weight Patrons and realized that there were a few Economics points made in this whole idea.
First, by reading this, I’m sure you’ll see where my opinion is. I love to spout off my opinion until proven wrong which often is the case and sorry if offend anyone.

For those who haven’t heard, a number of people in the last few years have gone way out of their way to file lawsuits against the McDonald’s food chain claiming that the fast food chain made them fat. (I wonder if the time in the Attorney’s office and in court cut time out of their gym schedule?) In the article “ Another McDonalds Lawsuit - Fat or Fast Food? ” ,one of these McDonald’s vs. Obesity lawsuits was filed in the New York Supreme Court. 3 teenagers are claiming that selling toys with a happy meal is a lethal combination. I guess the Happy Meal’s not such a “Happy” Meal after all?! The teenage trio also claims that the nutritional value of McDonalds food is “inaccurately…and deceptively advertised”. McD’s has never claimed that their Big Mac and Quarter Pounder are good for you. The trio’s lawsuit follows that of Caesar Barber’s suit which was directed not only at McD’s but Burger King, KFC Corp., and Wendy’s International. He blames “the chains for making him and others overweight and raising his risk of illness related to being overweight.” Just a side not to Caesar’s case, he ate the fast food constantly for a reported 52 years. No wonder he’s obese.

The economics portion of this piece is a two part deal. The first has to do with the personal gain these plaintiffs are seeking in their suits. The “Chubby Trio” seeks money for damages. The three were helped out by their parents who according to the “Another McDonalds Lawsuit - Fat or Fast Food?” article, are either unemployed or on disability. Do they really think that money acquired from a suit is going to fix their obesity? If for some insane reason the three were to win the case, do you actually think they’ll get a gym pass, learn to eat better, and benefit from the settlement? Or do you think there’s a slim possibility of them taking that nice chunk of money and using it on their eating out habit for the next 20 years. My vote is for the later. These people are seeking monetary gain for absolutely no work! It’s complete laziness. Nobody was forcing these people to eat McDonald’s!

The second part is the fact that McDonald’s advertising must be doing something right. The trio ate themselves to obesity at McDonald's. Well, sounds like McDonald’s is doing a good job advertising! I’m willing to bet that it’s McDonald’s job to attract customers to their establishment so that they can in turn make a profit. Am I on the right track or way off in right field?! Nowhere on the chains’ advertisements does it say that you must eat McD’s until you’re fat. So, as for the ability for McDonald’s to grab their share of the market and capitalize on unique ideas, they’re right on.
As for the obese people seeking money for damages, GET A JOB! Earn your dough the good ol' fashion way! As for McD's, Way to play that supply and demand curve Ronald!


Economical NBA Slam Dunk

This article interested me because it proved economics can be applied to just about anything in life, even an NBA finals basketball game. This blog entitled “Economical NBA Slam Dunk" was written by Stephen Popick, an economist, who used economic reasoning when deciding on which team (Lakers or Pistons) to place a bet on. Although odds were highly stacked on Lakers side, according to most sports analysts, Popick still placed money on the Pistons. Popick came to this conclusion by comparing the two teams statistics in years past. From these statistics, Popick determined that the Lakers had become a stagnant monopoly. They did not have the competition to keep them on their toes and striving to stay on top. They began slacking off. Popick also demonstrated there was a power struggle between the two main players of the Lakers (Kobe and Shaq) which also may have lead to their eventual demise. Conversely, the Pistons worked as a team with everyone doing their best to eventually obtain their goal of an NBA championship title. The Lakers worked as individuals out for themselves. The individuals of the Lakers did not collude and cooperate for the good of team therefore they did not obtain maximum efficiency.
Popick demonstrated the inability of a monopoly to produce long term positive results when he commented:

While in the Long Run, the Lakers have performed mightly, monopolies tend to lose efficiency over time in the face of little competition. A more ‘competitive’ firm found a way to enter. Congrats to the Pistons.

What I took from this article was that power in monopolies cannot last forever. It is the nature of monopolies to produce less efficiently than is possible. Perhaps the Lakers can be considered to be more like an Oligopoly of individual players that should have colluded to get best results, but when it came down to the game, it was every man for himself. A couple of players individual success may have increased, but the teams productivity and efficiency on the whole decreased eventually causing the once almighty Lakers to be beaten by a competitive under dog team.

Price Fixing in the Bicycle Market

Lately in class we have spent some time discussing market structure and the 4 types of suppliers/sellers. The bicycle industry was used as an example a couple of times. One company was used in the pricing matrix to show how a supplier dictating price would benefit both the supplier and the seller.
Unfortunately even in an oligopolistic bicycle part industry (virtually only two competitors) sometimes dictating price can backfire on a company.
A recent article By Michael Gamstetter in the Bicycle Retailer and Industry News discusses the frustrations of some retailers not being able to compete on price for customers’ business due to more and more distributors/manufacturers forcing prices on consumers. If the retailers don’t play they’re blackballed Shimano bids Branford Bike Adieu
Market share leader Shimano Components is surrendering its 20 year dominance to former industry leader Campagnolo by trying to monopolize the entire market and failing miserably in the process.
So what will the consumer gain from all of this infighting? For now not much. The bicycle consumer is forced to no longer shop on price (everyone is charging the same) but more on the speed and cost of shipping. Local bike shops who saw sales plunge as mail and cyber order companies grew because of cheaper pricing won’t gain much business either, because they’re forced to charge the same price also.
In the end nobody is a winner and until free market competition gives consumers more choice of price everyone is a loser.


U.S. Agriculture Subsidies and Developing Countries

In class and in the text we covered subsidies. Corn is one subsidized good that has been and continues to be a hot topic. It is difficult to buy a product today without corn being one of the ingredients. Did you know that coke you drink has corn in it? Your cold medicine does too. It is probably listed as corn syrup or high fructose corn syrup. Government subsidies keep the prices consumers pay low and keep the supply high. Subsidies are nice for us (the consumers) because they keep prices low. In the United States corn subsidies to farmers have made it possible for corn to end up in so many products, because the subsidies have created a surplus. Believe it or not U.S. corn subsidies hugely impact markets in other countries. This is one of the many outcomes of globalization. U.S. subsidized corn has ended up in huge quantities in Mexico, and Mexican farmers are unable to compete with the low prices of the subsidized corn. An author of an article from Oxfam (available through http://www.oxfam.org/ eng/pr030827_ corn_ dumping. htm) remarks, “The US pays its corn farmers $10 billion a year which encourages them to produce a surplus that is then dumped onto world markets at artificially low prices. New Oxfam calculations show US corn is dumped in Mexico at between $105m and $145m a year less than the cost of production”. Poor farmers in Mexico get hurt.
To learn more about the effects of U.S. agricultural subsidies on developing countries I read an article headlines “As US Food-Aid Policy Enriches Farmers, Poor Nations Cry Foul: Sending Crops, Not Cash, Eases American Gluts, Ignores Local Surpluses” from the Wall Street Journal. I discovered that the United States government purchases surpluses from American farmers and ships it to developing countries like Ethiopia. In fact U.S. legislation requires that US grown food be used for aid with few exceptions. Unfortunately U.S. food aid leaves farmers in developing countries sitting on their surpluses. It is crazy to think that in a time of famine, Ethiopian farmers had warehouses full of surplus grain. Ethiopian farmers, who are unable to get rid of their surplus, fear not having enough money for the next round of harvest and storage. Also, prices in Ethiopia will drop, farmers will be unable to pay loans and expenses. These factors will contribute to a smaller crop planted for next season, and famine will continue. Many groups “charge that Washington uses food aid to dump surplus commodities, in effect subsidizing U.S. growers”.

Farmers in the United States often plant around double what is needed domestically. To prevent losses the federal government grants subsidies. This will keep prices from dropping. The government also protects farmers by purchasing much of the surplus grain for food aid to other countries. Food aid purchases often account for nearly one-third of farmer’s profits. Nevertheless, in spite of food aid programs famine continues. Discrepancies between food aid budgets and foreign development aid contribute in part. For example, $500 million in food aid was sent to Ethiopia but only $5 million for development programs was sent. These programs are crucial because they support local development which can help prevent future crises. “The emphasis on food aid, they say, needs to be matched by long-term investment in agriculture and water that will develop the economy and save livelihoods as well as lives”.
It seems to me that food aid is more of a business than a humanitarian program. There are many beneficiaries of food aid programs such as farmers, combine drivers, ship crews, and more. They seem to have the potential to benefit more than the poor in famine stricken countries. Food aid introduces American products to other countries which benefits producers. I think it is wonderful that the United States offers help to developing countries, but I think we need to evaluate the methods of helping. For example, why does the U.S. send lentils to Ethiopia while Ethiopia has a huge surplus of locally grown lentils?

Corporating are gaining in Profits while Labors aren't seeing a cent of it

In Corporate Profits at Record Highs, While Labor Compensation at 38-year Lows John Irons brings up an interesting point about Corporations making more profits starting in 2001 and that labor compensation has decreased by about 4 percent which has brought it down to 63 percent but at the same time corporate profits have increased by about 4 percent taking them up to 12 percent. After all is said and done, (taxes being the said and done) profits reached 9.6 percent of GDP which is the highest it’s been dating back to 1947.

The economy has grown over the past year showing sings that the recession may be at last over. This would cause the American people to hope that the increased production would find its way into their pockets. But that doesn’t seem to be the case because lower proportion of national income is going towards labor.

The recovery from the recession doesn't seem to be a real one because its affects aren't widespread in the economy. Has the recession really come to a stop or have a few big business come into relief and their pocketbooks are feeling a little heaver then usual. Will the trend continue for them or will they begin to fell it like the rest of us Americans.

I know I personally have felt the affects of the recession. Here in Cedar there isn't a large quantity of jobs available and jobs are hard to come by unless you want to drive 45 min to St. George to have a better chance of finding a job. With no job I’m much tighter with my money and don’t spend it as easily if I had a job and knew I had some kind of paycheck coming in every two weeks. I’m not helping the economy out but it’s not really helping me either.

The Demand For Geeks Has Gone Up

I have a close friend who termed herself "geek" in highschool and was part of a group called the "nerd herd" and was proud of it. Little did she know that she and her group, in an effort to distinguish themselves as different, were only part of a rising trend that has come about in modern days due to how deeply technology has become imbedded into our American Culture.

William Butterfield, in his post called "Markets Made Geeks Cool..." at Corner Solution, says that the demand for geeks is rising because the term "geek" is now associated with the technological hero of the computer age whereas before it was always associated with canival performers whose talent consisted of biting off the heads of live chickens and snakes.

Butterfield empasizes the truth of this statement by referring to a recent federal law suit in which The Geek Squad Inc. of Minneapolis filed suit against Geek Housecalls Inc. of Lexington on trademark infringment. In Minnnesota's complaint, it claims that Massachusetts adopted a similar name to capitalized on Minnesota's established reputation and business.

"Established reputation" as a geek? Well, there it is folks. If one company can trademark a common word such as "geek" then those of us who want to be known by similar reputation better hurry and jump in the market before someone takes "nerd," "dweeb," "drip" or "bore."

P.S. It's a good thing I was a nerd before all this hype. I might have felt like I was a follower rather than a leader.

Happy Returns

Has anybody pondered the very important subject of why it is much easier to return a purchase in the United States than it is in Europe? Neither have I, but Alex Tabarrok has and he talks about it in his post called "Why so many happy returns?" in Marginal Revolution.

His ideas are a spin off of the old joke that the Germans are very nice people until you try to buy something from them. Tabarrok looks at, what he calls, this "return puzzle" from two different theories: the demand theory and the supply theory.

The demand theory suggests that because incomes are lower in Europe, maybe people of lower income don't demand easy return policies. Tabarrok contests this and says that, since easy return policies are a form of an insurance policy, low-income poeple would be more likely to demand them than not, and there would be similar demands in countries such as Sweden, if this were correct, which there are not.

The Supply theory suggests that it might be cheaper for U.S. firms to offer easy returns than it is for European firms since they are larger and can take advantage of economies of scale. Tabarrok contests again and says that, if this is true, then why aren't U.S. international firms offering easy return policies in Europe.

I, personally, think that the supply theory has more validity because it is cheaper for U.S. firms to offer easy return policies in the U.S. but would it be just as cheap for the same U.S. firm to offer the same policy in Germany? I don't think it would. Maybe there are different opportunity costs involved in Germany if they choose to go with an easy return policy there versus here.


Chinese be Shoppin'

“Chinese be Shoppin’”

“http://www.economist.com/printedition/PrinterFriendly.cfm?Story_ID=2771531”, an article from The Economist Newspaper and The Economist Group, http://www.economist.com/printedition/PrinterFriendly.cfm?Story_ID=2771531
is an interesting article about the Chinese people’s love for shopping. The amount of Chinese people spending their time shopping continues to grow. According to Tyler Cowen, a Marginal Revolution writer, Chinese mainlanders spent more money per person shopping this last holiday in Hong Kong than all tourists combined. The purchasing of luxury items by Chinese people is also on the rise.

In microeconomics we learned that as an individual’s income increases, their purchasing of luxury items increases whereas their purchasing of inferior goods decreases. Since Chinese people are purchasing more luxury items, is it reasonable to assume that income in China is increasing?

I am inclined to believe that the Chinese people are not necessarily becoming more affluent. Alternatively, they are spending less and less money in other arenas of their lives in order to afford luxury items. This point is demonstrated by a statement by Christopher Zanardi-Landi, a luxury-firm general manager in China for Louis Vuitton. "The Chinese go to Paris, stay at two- star hotels, eat cheap Chinese food and spend all their time shopping,” This statement shows that some Chinese give up eating spendy food and staying in higher priced accommodations in order to afford luxury items.

An excess of demanders in the College Market

In browsing the Marginal Revolution web log, I came across a posting on college admissions (posted June 3). As we are all entrenched in college life I think this is a relevant article. I first read Fabio Rojas’ comment and followed the link to the original San Francisco Gate article. The article focuses on two universities in California- UC Los Angeles (UCLA) and UC Berkeley (UCB). This year these two universities found themselves unable to find space for all of their admitted students. Enrollment levels were reduced due to statewide budget cuts instituted by Governor Schwarzenegger. In previous years accepted students who could not enter a UC at which they were accepted, on account of enrollment constraints, were offered a space at another UC. This year, however, 7,600 students accepted at UCLA or UCB could not be accommodated at the UC that accepted them or at another UC. The University of California Administration offered these students a promise of enrollment after 2 years of community college coursework. Of the 7,600 students facing this offer, 6,243 rejected the offer and 1,357 accepted the offer. The article quotes one student who rejected the offer and instead accepted admission to New York University (NYU). This student had a substitute and a private (probably more expensive) one at that.
This policy introduced by the University of California struck me. It seems unfair that qualified, accepted students were turned down on account of budget constraints. Rather than raise prices, the university decided to offer the students a place after two years at a community college. These students will thus enter UCB or UCLA as juniors. This would cut their costs considerably; yet, they would miss two years of classes and experiences at universities. For those students with few substitutes, the UC’s offer could work nicely, but many students today apply to several universities. Depending on their qualifications and the schools they applied to, they may have several substitutes.
Essentially their demand is elastic…or is it? In class we learned that goods that are a larger percentage of one’s budget tend to be more elastic in comparison to goods that take up a smaller percentage of one’s budget. College indeed takes up a large percentage (or all) of our budget. Given that demand is elastic, it is more lucrative to keep prices low and students will be less likely to seek substitutes. Given the large number of students who rejected the offer, maybe students applying to UCB and UCLA do not see community college as a substitute? Maybe they would be willing to pay increased tuition (or as we learned—a price above the price ceiling)? In this case however the students did not have an opportunity to respond to a change in price.
Fabio Rojas remarks, “Administrators should view a surplus of customers as a signal that the market can bear some price increases. Instead, California legislators tend to fight tuition increases because they might exclude low income students through grants and financial aid”. He asserts “price hikes for the wealthy and subsidies for the needy is surely a better policy than arbitrary price ceilings and the exclusion of many who are able and willing to pay”. I think Rojas makes an important point. It seems that the university’s policy works well for those with few substitutes due to financial constraints, but the university is turning away students who can pay and could potentially pay increased tuition. It is nice however to think that universities look out for those of us who cannot pay full tuition.
This article and posting also makes me think about the third-party payer concept. Many of us do not pay the full tuition bill. Either we receive help from our parents, the government, or both. Demand for college education is thus higher than it would be if we (as students) we paying the full bill ourselves. Given that, I am wondering if and how demand really responds to tuition increases? Will this really decrease quantity demanded? For those of us on financial aid, it sure will unless financial aid awards increase as well. It would be interesting to take a survey of those who rejected the offer to see which universities they attended instead of UCB or UCLA. This will reveal whether they sought lower cost substitutes or higher costs substitutes.
(References: (1) Schevitz, Tanya. “Rejected UC applicants snub plan. Most turn down delayed-entry program”. (2) Rojas, Fabio. “College Admissions in California”. Marginal Revolution Web log.)

Mcdonalds super size crisis

We always knew fast food was bad for you. But reading here about Morgan Spurlock's documentary called "Super Size Me", I was kinda scared. His documentary is a film of himself eating Mcdonalds for every meal...30 days straigt. Errr, sounds like a dumb thing to do, but his documentary has made a big impact, both on people viewing it, and on Mcdonalds. The article talks about Mcdonald's recent economic difficulties, how this film can hurt the economy for fast food, and the extreme lengths, restaurants like Mcdonalds are going to, just to keep people happy, such has selling salads, etc. The article also shows how corporations fund/donate to polititions and other companies so they can stay on top. Guess who The American Council on Science and Health's past doners have been... Chocolate manufacturers, Burger King, Coca Cola, and other companies producing unhealthy food. I thought that interseting since we'd discussed how corporations give money to get people to make favorable decisions for them in Dr. Tufte's class. Hope you enjoy the article.


Wasting Water for Fun and Profit

As the full effects of summer begin to take shape, the streams, lakes, vegetation and wildlife of Utah will become more parched. For several years now drought has plagued this state. There will be numerous cries from the state Natural Resource division and government leaders to conserve water. Two years ago, Governor Leavitt (now ex-governor) declared a drought emergency according to an article titled "Governor to declare drought emergency" Conditions have actually worsened since then. Web sites have emerged Division of Water Resources Governor's Water Conservation Team to help educate citizens of the state on water conservation.
Allow me to educate readers on the hypocrisy of the government of Utah to encourage water conservation.
The problem begins with the Utah Division of Water Rights and trickles downhill (pun intended) from there. Utah law reads, all waters in Utah are public property. Public property despite the fact that in order to own and use water, rights must be purchased and a title to those rights recorded with the recorders office. Further reading states, a water right is a right to the use of water based upon 1) quantity, 2) source 3) priority date, 4) nature of use, 5) point of diversion and 6) physically putting water to beneficial use. In other words the state reserves the right to take ownership away, unless as previously stated, one can prove physically putting water to beneficial use.
I own enough water rights to supply 128 homes a year with water. But I am literally forced to pour it on the ground to keep my investment or have it taken away without any compensation. Good economics (water rights have appreciated along with real estate in Utah) has forced myself and others to do the same thing, with hopes of capitalizing on our investment.
When you visit the conservation website, there’s a link to report water abuse take a minute to remind the state that forcing citizens to use water when they don’t need to is not conservation.
Should there come a requirement for citizens of the state to give up washing their cars and watering their lawns come by our place, and enjoy our sprinklers. There’s plenty of water to waste for everyone.

Oligopoly Today

Many of our fellow classmates are too young to remember Ma Bell and the baby bells (ie Pacific Bell, etc) in reference to oligopolies. But I think that we are all familiar with Las Vegas and the extravagant casinos housed there. I have found two blogs that talk about mergers of the casino business that may put oligopolies in a new light by using examples that are more familiar.
The first titled "A Safe Bet" in the Oligopoly Watch gives a great overview of what the merger or rather formation of the oligopoly entails and the other blog titled "Gaming Industry Consolidation" goes more in depth.
Hopefully these sites can help my fellow classmates and myself understand oligopolies.


Supply disruptions could cause oil prices to rise, peaking around year 2010 costing $80 per barrel

On June 7th 2004, oil reached $42 for just one barrel on the New York Mercantile Exchange. Most analysts say that the price of oil will eventually return to $30-$35 a barrel. However, some say that there are too many other factors to take into consideration to know better. First, the oil producing countries around the world were producing eight percent more oil than necessary in 1991, but now it is around three percent. We are using up the oil reserves very quickly. Because India and China are growing economically, they are beginning to use more and more oil. Before we know it, there will be 2.4 billion new vehicles on the road that will use even more oil. This will probably increase the cost per barrel to around $80, which comes to a little more than $4 a gallon of regular gasoline. On top of this and many other factors that will either slow or stop production completely, a new study has told us that we could exhaust our oil reserves as early as the year 2010.

Most Americans know that we are consuming way too much, but most don’t know that we consume 19.7 million barrels per day! That’s more than Japan, China, Germany, Russia, Brazil, and India, the next 5 leading nations in oil consumption all combined. What amazed me the most was that the nations we get most of our oil from, were among the lowest oil consuming nations in the world. In fact, we consume more than six times as much as Saudi Arabia, Turkey, South Africa, & Iraq combined.

Who Wins and Who Loses as Jobs Move Overseas?

Since the late 1800’s the United States economy has gone through many transformations and changes. In the 80’s, we lost a considerable number of jobs in manufacturing simply because American corporations found that it was much cheaper to let cheaper labor forces from India and China perform the jobs that Americans had worked. It scared a lot of people because American jobs went overseas and with it, American money. In recent years, we have seen white collar jobs also being sent overseas. Jobs that we thought were indispensable a couple years ago are now in the hands of someone thousands of miles away. In this article, the people having the conversation made some really good points. These are American companies, taking advantage of a cheaper labor forces to make more money and enabling Americans to buy the same goods and services we’ve grown accustom to for less money. Also, these lost jobs will more than likely give way to new jobs which will some day give way for other news jobs as our country and our economy grows and evolves.

The problem that I see, that was not addressed here, is the simple fact that we are losing money to these other countries. They are right, that these are American companies, but these companies are not selling near as much goods and services to the Chinese and Indians as they do to Americans. If we are sending all of our jobs over seas, how on earth are we going to continue to buy the goods and services produced by these cheap labor sources if we don’t have the income produced by these jobs? We already have an enormous negative trade deficit, meaning we are buying more goods than we are selling. We are sending our jobs, our money, and soon, our entire way of life to other countries. Our standard of living will regress to the point at which they are currently accustomed to.


Minimum Wage Fantasy

In Russell Nelson's blog entitled, "A Living Wage," he jokes that George Gonos' opinion that the minimum wage should be changed from $5.15/hr to $10.00/hr is not Economic Sociology but rather Economic Fantasy. I agree with him.

Some of the points that Nelson makes in his blog are, first of all, that no employer can be forced to employ anybody. So, since a raise in minimum wage would cause the employer to loose money on the same amount of employees doing the same amount of work, something would have to be done to decrease the cost to the employer. This could be one of two things: a raise in prices or a cut in the amount of employees.

Since a raise in prices would decrease the demand for the product and, thus, decrease sales, the only other possible option would be that of cutting down on the amount of employees. Of course, from what I've learned in economics, a cutting down in the amount of employees will lead to a decrease in the production of goods which will also lead to a raise in price and a decrease in sales. To me, it looks like a lose lose situation.

Ok, as a struggling college student, I agree that a raise in minimum wages would be nice but not if the products that I have to buy in order to live are fewer and higher priced. I'll be in the same "poor" situation that I was before, possible even worse.

Our Cost/Benefit Relationship With The Law

It is very compelling to me how much economics in a "cost/benefit" framework applies to the law and how we react to it. In a blog I recently read posted by Greg Goelzhauser, I couldn't help but think of the many risks we take in doing something illegal, or at least how many times we analyze the costs and benefits of doing such a thing.

The example that Goelzhauser gave, illustrated a man that was going to be late for an appointment at Columbia University because of the parking conditions. Although the man was a faculty member at the University, no one had been assigned a parking space. Given his options, he could park illegally which would put him very close to the campus, or for a certain price he could go to a parking lot a little further away.

I thought it was interesting how this professor analyzed whether the benefit of parking illegally, outweighed the cost the he might get a ticket. After conducting some research, he found that the more serious the crime, the greater chance one has of being convicted. Most of us don't think twice about jay-walking because we know that the likelihood of being ticketed is very slim and the benefit outweighs the risk that we might get caught. He also concluded that the criminals convicted of greater crimes would face a greater punishment.

Although this may seem like an obvious conclusion, I think there is some detail there that we don't consider. Why do we look for ways of getting around the law? Is it because the law doesn't always seem significant enough to abide by and we know that we can get away with some of the petty things? I'm not saying that I haven't tried to "get away" with some things that I thought were not important, but, I think it is a dangerous cycle we are entering as a society.

Our laws have become more and more complex because of people seem to be more concerned with individual justice, rather than In more serious cases that involve crimes such as burglary, theft, rape, or murder, the trend is that society is more concerned with "individual justice" rather than justice for our society as a whole. Because we are so terrified of convicting someone that is innocent, the burden of proof is set so high that we let to many murderers and rapists get away. Would it be better to wrongly convict a few more innocent people each year to be able to convict a lot more of the ones who are guilty? Is it more unjust that we convict an innocent person, or that we let lot's of the guilty ones go free while trying to discern, not forgetting that the ones that are guilty with continue to commit these horrid crimes?


Prostitution econimics

I totally thought this blog on prostitution found at the Idea shop thinking about prostitution was hilarious.
It compares prostitution to marriage. The blog is based on a paper written by a man and woman who claim that prostitution, economically, may be the world’s oldest profession. Prostitution is said to be an inferior good. The best part of the whole blog for me was when it suggested that wife’s and prostitutes are substitutes. In definition from all I can tell marriage and prostitution are substitutes.
My skepticism comes into play when the blog said prostitution falls as men’s income rises. This doesn’t make sense. The more money one has the easier it would be for a that person to get sex with out any ties. Which makes me ask why would poor men be more inclined to pay for sex when they don’t have the money. Now that does not seem very economical to me.


Price Floor again...but Better

Okay, just as I finished posting my last price floor comment I started looking at the different sites that Dr. Tufte has listed to the left. And what I found was a better example of the effects of price floor on buyer, seller, and even politicians. (I don’t think you can comment on your own post, so I am posting again). I found it on The Angry Economist site, and after reading this I too am angry. The link took me to an article written by Walter Williams, the title is "Minimum Gasoline Prices."

Now I am not sure that statutory minimums are the same as the price floors we learned about in class, however after reading the article they seem pretty similar, if not the same. Anyway, in this article Williams talks about how these taxes in the various states are hurting the buyers of gas and helping politicians and sellers. I can’t believe how well this went along with our discussion in class (6/9/2004). Wow, can you believe it…economics really can be found in the “real” world?

Price Floor

According to our textbook, a price floor is a government-imposed limit on how low a price can be charged. I found an article on the agriculture law website that illustrates this concept. The article is titled “Dairy Income to Suffer, Says Federation.”

The effects of the USDA decreasing the level of the dairy price support program are large for farmers. Interestingly, the effects of lowering the levels of the program go far beyond just milk (i.e. how/where to store excess butter). According to the article, the USDA decision will also cause additional sales of surplus cheese to the government; consequently, the different class levels (milk, cheese, butter, etc.) will be affected as well.

With this price floor, just like the minimum wage example in the book, some people are being helped by this new policy and some people are being hurt by it. However, the question then must be asked…is it worth it? Are we sacrificing the inferior for the superior? Or is the government doing more harm then good?

The Future of Education

Because I plan on being a high school social studies teacher, articles that relate to education catch my eye. The predictions that Arnold Kling makes in the article "A 2020 Vision for Education" are quite entertaining but when taken literally, scary as well. It could, and may, happen.

Technology is constantly improving, or at least changing, and Kling talks about the opportunity costs that education have to consider. One point was made about personal relations. With the use of technology on the rise it is a normal scene to have children as young as 4 sitting in front of a computer--for hours. What is going to happen socially for these children when they spend most of their time "visiting" with a machine be it a program or via e-mail and chatroom? How are our children going to learn how to relate to others in a social situation? But at the same time we have as many concerns about children who aren't keeping up with technological advancements because "it is the future" and how can anyone succeed without technology?

Read the article by Kling, it may get you as confused and angry as I got!



I believe it was the first day of class that someone stated that one of the major differences between humans and animals was the idea of trade, animals can’t do it. However, contrary to the discussion held in class I found an interesting article titled “Pick Up a Penguin” on the BBC world news page.
In this article I discovered that economics is not unique to humans; Adelie penguins on Ross Island at the South Pole were discovered participating in an economic phenomenon. Male penguins go out and collect stones and give them to the female penguins, in return the females provide sexual favors for the males. (So much for the idea that Penguins faithfully mate for life). These rocks and stones are used to make nests and are hard to come by, a limited resource that is necessary for the survival of the female’s eggs. The stones are so valuable sometimes they are even stolen from other penguins, which makes these stones and rocks very valuable and in high demand.


Atkins does it have something to do with economics

The first or second day of class Mr.Tufte showed us different Blog sights to give us an idea of what it was we were in for and one of the blogs had a lady who had been doing the Atkins diet. A comment was made about "what dose the Atkins diet have to do with economics?"

I have been unable to find the sight since. I wish I had the link so others could see it.

I may be wrong because the idea of microeconomics is very new to me and I may not clearly understand the definition or meaning of what microeconomics really is all about. But I do believe that the Atkins diet does have to do with economics in a much bigger way then others may realize.

The fast food industry has come out with new items on their menus (I personally wouldn't call a hamburger without a bun a new item but they seem to think it makes it one) which allows those, I being one of them, to still enjoy eating out at some of our favorite places.

Candy manufactures are jumping on the bandwagon also. It does cost more then your regular Snickers, M&M's or Hershey bars but I do have to say carb free candy does taste pretty good. There is a demand for carb free candy and those who are supplying it are definitely able to charge a pretty penny for it because the suppliers are so few.

I personally have lost over 30 lbs doing the Atkins diet and have enjoyed my smaller size in clothing once again. Atkins has economically affected my life because it allowed me to fit back into my old clothes so I didn't have to buy new ones in a bigger size which allowed me to spend the money on other things I wanted more.

Gas prices rising, demand remains constant

I am a "news nut" and browse all of the different networks' pages practically daily. I am also a commuter who drives an SUV (yes, I know, poor choice of automobiles at this time) so gas prices are concern for me.

On June 2, I read an article named "OPEC Chief calls for higher oil output" at MSNBC.com that talked about the rise in gas prices and how it hasn't deterred many people from purchasing. There was also a graph depicted showing that between 1970-1981 people did lay off buying gas when the price rose. I believe that this would fall under the trade-off idea in the fact that there is a trade-off between gas prices and autonomy (driving oneself).

Today at http://money.cnn.com/2004/03/29/news/economy/gas_prices/ is another article that talks about the rise in gas prices and demand has remained constant. Check it out, and others like it, because if you are an autonomous automobile driver this may concern, or intrigue, you!



Milton Friedman Explains It All

The EconLog post entitled "Milton Friedman On Health, Education" quotes from a FoxNews interview:

There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you're doing, and you try to get the most for your money.

Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I'm not so careful about the content of the present, but I'm very careful about the cost.

Then, I can spend somebody else's money on myself. And if I spend somebody else's money on myself, then I'm sure going to have a good lunch!

Finally, I can spend somebody else's money on somebody else. And if I spend somebody else's money on somebody else, I'm not concerned about how much it is, and I'm not concerned about what I get. And that's government. And that's close to 40% of our national income.

This has applications in many ares of the textbook, and will help you think about how the world around you works.

P.S. Milton Friedman is probably the greatest living economist. He won a Nobel Prize in 1976.

Problem May Be Solved

I've had a lot of trouble getting my students registered as team members able to write in this blog.

I think I've figured out that problem, so we should start seeing some content soon.

For those of you considering team blogging, our problem here is that Blogger sends out an invitation by e-mail, and some e-mail services (e.g., Hotmail, Yahoo) insert HTML code into the messages. This can invalidate the link to the invitation that Blogger sends. The workaround is to not click on that link; rather, copy that link into the address bar of a browser and go.


Demand Shifters for Bagels

Dr. Tufte recommends the post at Brad DeLong's Semi-Daily Journal entitled "Selling Bagels Without a Cash Register".

The extended quote discusses the factors that affect the amount of revenue a guy makes from a business that involves leaving trays of bagels and doughnuts at offices, along with an unattended box to collect payments/donations. Most of these factors could be labeled as demand shifters (discussed in Chapters 4 and 5), or you could use them to talk about cross-elasticities (discussed in Chapter 6).


Time Flies On the Internet

This blog has been discovered and promoted even before the students have had a chance to write anything.

Michael Kantor at The Calico Cat was the first to notice, and he told Karsten Junge at CurryBlog. Both have posted about this idea already (see Blogging In the Classroom" and "Blogroll Update").

OK students ... the pressure is on ... the eyes of the whole blog world are watching!"

P.S. For students who are trying to figure out how this all happened so fast; smart webmasters get reports of who linked to their site around the internet. When I linked your class blog to The Calico Cat, the author/webmaster there got a report telling him that I had linked our blog to his ... and then he checked us out, and wrote about what he found.


Top Twelve Ways to Lower Gas Prices

This is a sample of what a student's post might look like. I will be posting stuff like this periodically to get things started.

The Marginal Revolution post entitled "How to Lower Gas Prices" mixes two real government actions with a top ten list from The David Letterman Show. See if you can tell which are which!

This applies (broadly) to topics we will learn about in Chapters 4, 5, 7, 12, 18 , and 19.

P.S. What does it tell you about the level of understanding of economics by government officials that they can put together a list like this?